The 3-6-3 Rule is a guideline used in the banking and finance industry to describe the traditional banking business model. The rule states that a bank should be able to borrow money at 3%, lend it out at 6%, and be on the golf course by 3 o’clock.
The 3-6-3 rule refers to the process of a bank borrowing money at a low interest rate, typically from depositors, and then lending that money out to borrowers at a higher interest rate. The difference between the two interest rates is the bank’s profit. In this way, the rule describes a basic principle of banking: borrowing at a low rate and lending at a higher rate to generate profit.
The “3 o’clock” part of the rule is a colloquialism, and it refers to the idea that a bank’s business should be straightforward and profitable enough that the bankers should be able to leave work early.
It’s important to note that this rule is an old guideline and is not used as much today due to the many changes in the financial industry, such as new regulations, new products, and new technologies. The banking business model has changed a lot since the days of the 3-6-3 rule, and banks now have to navigate a more complex and competitive landscape.
The banking industry faced significant problems leading up to the Great Depression, such as corruption and a lack of regulation. As a result, the government implemented tighter regulations on the banking industry after the Great Depression to prevent similar issues from arising in the future. These regulations limited the rates at which banks could lend and borrow money, making it more difficult for them to compete and limiting the services they could offer to customers. As a result, the banking industry became more stagnant.
However, with the loosening of regulations and the incorporation of new technologies in the decades following the 1970s, the banking industry has become much more competitive and complex. Banks now offer a wide range of services, including retail and commercial banking, investment management, and wealth management. Retail banks primarily focus on serving individual customers with services such as savings and checking accounts, mortgages, personal loans, and credit/debit cards. Investment management banks generally handle collective investments and oversee the assets of individual customers. Wealth management banks cater to high net worth and ultra-high net worth individuals, providing specialized financial solutions and services such as investment management, tax preparation, and estate planning. Financial advisors in these banks often aim to attain the Chartered Financial Analyst (CFA) designation, a measure of their competence and integrity in investment management.